WEIGHING IN ON EVS AND THE VALUE OF DEALERSHIPS On Jan. 5, 2022, The Washington Post published an op-ed article by Liam Denning entitled “Car Dealership Laws Aren’t Fit for the Electric Age.” On Jan. 13, 2022, NADA’s president and CEO, Mike Stanton, responded. The following sections contain a summary of the op-ed and Mike Stanton’s response. An Admittedly Biased Summary of Liam Denning’s Article in The Washington Post The op-ed begins with Liam Denning’s view of the auto dealership world. It isn’t pretty. He sees dealerships as no more than a revolving door for products. (Isn’t that what any good retail store tries to be?) The pandemic and supply chain issues emptied lots, then kept them empty. He saw the dealerships’ response to the pandemic as an opportunity to raise auto prices as volume fell. To support that claim, he said volume for 2020 was 7% less than for 2019, but that gross margin almost doubled, making their response to the pandemic nothing more than a chance to raise prices while volume fell. He then notes that dealers have a “growing challenge” as they move forward. How accurate are his claims? They are misleading. Although he doesn’t talk about auto manufacturers or other industries, they too had unexpectedly profitable years after the pandemic shutdown. And although net profit was up for U.S. dealers, net profit included net operating profit and incentives paid by automakers to dealers who exceed sales targets. Also, chip shortages meant manufacturers focused on building SUVs and trucks because they have higher margins than small cars. Higher net profit is to be expected for everyone under those circumstances. The article then moves to an admiring analysis of EV manufacturers, with Rivian Automotive Inc. and Tesla Inc. mentioned by name. He says nothing about how direct sales affect EV profits, but he does say EV manufacturers are highly valued at the moment. He then talks about how the current system came to be. State laws passed decades ago were designed to prevent predatory behavior by big U.S. automakers and force them to use independent franchises for vehicle sales and service. After the history lesson, he claims that the current market is different from the 1950s market. Why? He says three U.S. brands no longer dominate the market. The current market, he claims, is too competitive to allow a repeat of the same issues that caused legislation to be 26
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